Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Capital Investment Analysis: Amenity Hotels Inc.
Transcribed Image Text:Net Present Value Method-Annuity for a Service Company
Amenity Hotels Inc. is considering the construction of a new hotel for $80 million. The expected life of the hotel is 10 years with no residual value. The hotel is expected to earn revenues of $24 million per year.
Total expenses, including depreciation, are expected to be $16 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 14%.
a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places.
$4
million
Present Value of an Annuity of $1 at Compound Interest
Periods
8%
9%
10%
11%
12%
13%
14%
1
0.92593
0.91743
0.90909
0.90090
0.89286
0.88496
0.87719
2
1.78326
1.75911
1.73554
1.71252
1.69005
1.66810
1.64666
3
2.57710
2.53129
2.48685
2.44371
2.40183
2.36115
2.32163
4
3.31213
3.23972
3.16987
3.10245
3.03735
2.97447
2.91371
3.99271
3.88965
3.79079
3.69590
3.60478
3.51723
3.43308
6.
4.62288
4.48592
4.35526
4.23054
4.11141
3.99755
3.88867
5.20637
5.03295
4.86842
4.71220
4.56376
4.42261
4.28830
8.
5.74664
5.53482
5.33493
5.14612
4.96764
4.79677
4.63886
9.
6.24689
5.99525
5.75902
5.53705
5.32825
5.13166
4.94637
10
6.71008
6.41766
6.14457
5.88923
5.65022
5.42624
5.21612
b. Compute the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the minus sign to indicate a negative net
present value.
Net present value of hotel project:
million
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